Understanding Loan Product Advisor s Determination of Total Funds to be Verified

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1 Understanding Loan Product Advisor s Determination of Total Funds to be Verified Loan Product Advisor uses the information submitted to help determine the amount of funds required from the borrower(s) to close a loan. In Loan Product Advisor, this is known as the Required Borrower Funds. Loan Product Advisor returns this information in the Asset Information section of the Loan Product Advisor Feedback Certificate (Feedback Certificate), along with other information that will help you determine if the borrower has sufficient eligible assets to close the loan pursuant to our Guide. This reference explains how Loan Product Advisor determines the results displayed in this section, associated feedback messages and data entry tips for obtaining the most reliable results. Note: The Asset Information section is available in Loan Product Advisor Version and higher; however, certain fields are only available in later versions and are noted, as applicable, in the information below. To determine the Loan Product Advisor system-to-system version you are using, refer to the LPA Version field listed in the Results section of the Loan Product Advisor Feedback Certificate. You can also find more information on our website ( by clicking on your vendor s name to see the latest version. If you are accessing Loan Product Advisor through the Loan Advisor Suite portal, you are using the latest version with the latest fields and messages. Results Returned in the Asset Information Section The Feedback Certificate returns the following results in the Asset Information section: Purchase Transaction Example: * 6 Refinance Transaction Example: Note: Loan Product Advisor does not determine Required Borrower Funds for FHA or VA Mortgages and, as a result, suppresses the Asset Information section for those loans. November

2 Asset Information Section Results # Field Brief Description 1 Total Eligible Assets The total amount of assets that are eligible sources of borrower funds and reserves. 2 Total Funds to be Verified The minimum amount of eligible assets that must be verified Required Borrower Funds (Cash-to-Close) Required Reserves Paid Down Debts* Paid Off Debts The amount of funds to be paid by the borrower in connection with the transaction. (Note: If this value is negative, $0.00 displays. This occurs, for example, when the borrower is receiving cash out from the transaction.) The minimum amount of reserves that must be verified based on the risk of the loan and Guide requirements. (Note: Loan Product Advisor may not require any verified reserves for certain transactions, while other transactions may require reserves to be verified.) This field displays only on purchase transactions and includes liabilities with a Paid Down indicator of Yes. This field displays only on purchase transactions and includes liabilities with a Paid Off indicator of Yes. It does not include mortgages on properties indicated as pending sale or sold on the Schedule of Real Estate Owned. * Field available if accessing Loan Product Advisor through the Loan Advisor Suite portal or through a system-to-system interface using specification v or higher. How Loan Product Advisor Determines Results and Associated Feedback s This section explains how Loan Product Advisor determines each result in the Assets Information section, and which associated feedback messages are returned in the Assets and Reserves section of the Feedback Certificate. Total Eligible Assets Calculation Total Eligible Assets is equal to the sum of the following asset types*: Checking Account Savings Account Certificate of Deposit / Time Deposit Money Market Fund Stock Bond Mutual Fund Retirement Fund Trust Account Life Insurance (cash value) Net Equity Sale of Real Estate (for pending sales) Secured Borrowed Funds Not Deposited Other Liquid Assets Cash Deposit Toward Purchase (Earnest Money) Bridge Loan Not Deposited Cash On Hand (eligible for Home Possible only) Gift (eligible for Primary Residence or Second Homes only) November Page 2

3 Ineligible asset types include the following: Automobile Net Worth of Business Owned Other Non-Liquid Assets *To receive complete results, you need to enter asset details on the Asset Breakdown pages in Loan Product Advisor. Feedback s for Total Eligible Assets Loan Product Advisor returns the following messages in the Assets and Reserves section when applicable: DOC IT DOC K1 Example: The following asset(s) total $43, and are eligible sources of funds: Retirement: $28,000; Checking: $10,000; Stock: $5,000. Example: The following asset(s) total $4, and are ineligible sources of funds: Automobile: $3,000; Cash On Hand: $1,000. Note: The feedback messages list assets in order of value with the highest value displayed first. Total Funds to be Verified Calculation For purchase transactions, Total Funds to be Verified is the sum of the Required Borrower Funds, Required Reserves, Paid Down Debts and Paid Off Debts. For refinance transactions, Total Funds to be Verified is the sum of the Required Borrower Funds and Required Reserves (mortgages and other debts to be paid down or paid off are included in the Required Borrower Funds value). Loan Product Advisor compares the Total Funds to be Verified value to the Total Eligible Assets value to determine if the assets are sufficient to close the loan. If the Total Eligible Assets value is insufficient, Loan Product Advisor returns a message indicating eligible assets are less than the funds required to be verified. Feedback s for Total Funds to be Verified Loan Product Advisor returns the following messages when applicable: DOC GF* (New ) DOC GT* (New ) DOC XO** (Modified ) Purchase transaction example: The total funds to be verified are no less than $45, This amount includes required Borrower Funds ($42,500.00), required reserves ($3,000.00), any debts to be paid off at or before closing ($100.00) and any debts to be paid down at or before closing ($0.00). Refinance transaction example; The total funds to be verified are no less than $45, This amount includes required Borrower Funds ($42,500.00) and required reserves ($3,000.00). Purchase transaction example: The total funds to be verified are no less than $45, This amount includes required Borrower Funds ($42,500.00), required reserves ($3,000.00), and any debts to be paid off at or before closing ($100.00). The total funds to be verified do November Page 3

4 not include funds needed to pay down debt. In addition, the amount of discount points paid by someone other than the Borrower must be added to the amount that must be verified. DOC BO** (Modified ) DOC HO DOC DO DOC FO Refinance transaction example: The total funds to be verified are no less than $45, This amount includes required Borrower Funds ($42,500.00) and required reserves ($3,000.00). The total funds to be verified do not include funds needed to pay down debt. In addition, the amount of discount points paid by someone other than the Borrower must be added to the amount that must be verified. The Seller must verify sufficient assets from eligible sources of funds required to close the Mortgage transaction. The Borrower's total eligible assets are less than the calculated total funds required to be verified by Loan Product Advisor. The Seller must verify sufficient assets from eligible sources of funds to close the Mortgage transaction. If a property on the Schedule of Real Estate Owned is pending sale or sold and sale of the property requires additional funds from the Borrower, the Seller must document that the Borrower has sufficient funds to complete the sale of the property on the Schedule of Real Estate Owned in addition to the amount of total funds to be verified. * Returned if accessing Loan Product Advisor through the Loan Advisor Suite portal or through a system-to-system interface using specification v or higher. ** Returned if accessing Loan Product Advisor through a system-to-system interface using specification v and v Note: In certain instances, Loan Product Advisor is not able to identify all of the necessary information to determine the amount of Total Funds to be Verified: Paid Down Debts - If accessing Loan Product Advisor through a system-to-system interface using specification v or lower, the Paid down At or Before Closing? and Amount to be Paid Down? fields are not available. To accurately reflect the Total Funds to be Verified amount, refer to the information outlined in the Data Entry Tips section Discount Points - If accessing Loan Product Advisor through a system-to-system interface using specification v or lower, the Total Discount Point field is not available. To accurately reflect the Total Funds to be Verified amount, refer to the information outlined in the Data Entry Tips section. Pending Sale or Sold Property Requiring Additional Funds - When a property on the Schedule of Real Estate Owned is pending sale or sold and the sale of the property requires additional funds from the Borrower, the Seller must document that the Borrower has sufficient funds to complete the sale of the property on the Schedule of Real Estate Owned in addition to the Total Funds to be Verified amount. Required Borrower Funds (Cash-to-Close) Calculation Loan Product Advisor uses information from several fields to determine Required Borrower Funds. Transaction costs and Loan Proceeds from Subordinate Financing are components of the Required Borrower Funds calculation: November Page 4

5 Required Borrower Funds Calculation Purchase Price (purchase transactions only) (line a) + Alterations, Improvements, Repairs (line b) Note: Line item references correspond to the Details of Transaction section of the Uniform Residential Loan Application. + Refinance (include debt(s) to be paid off) (line d) - Loan Amount (base) (line m)* + Transaction Costs (see calculation below) - Loan Proceeds from Subordinate Financing (line j) (see calculation below) = Required Borrower Funds * Base loan amount excludes PMI, MIP Funding Fee. Transaction Costs Estimated Prepaid Items (line e) + Estimated Closing Costs (line f) + Total Discount Points** + (PMI, MIP Funding Fee Total (line g) PMI, MIP Funding Fee Financed (n)) - Borrower s Closing Costs Paid by Seller (Seller Credit) (line k) - Other Credits (line l)* = Transaction Costs * Other Credits (Purchase Credits) include: Earnest Money that has cleared (Cash Deposit on Sales Contract), Relocation Funds, Employer Assisted Housing, Lease Purchase Fund, Borrower Paid Fee (outside closing), Property Seller Credit, Lender Credit, and Other (such as sweat equity on Home Possible Mortgages when there is at least a 5% down payment from borrower personal funds as indicated in Guide Section (c)(ii)). ** Total Discount Points field is available if accessing Loan Product Advisor through the Loan Advisor Suite portal or through a system-to-system interface using specification v or higher. Refer to the Data Entry Tips section for additional information. Loan Proceeds from Subordinate Financing Purchase: Refinance: Amount entered in the Subordinate Amount field. Amount entered in the Subordinate Amount field less balances of subordinate mortgages and HELOCs secured by the subject property when the Subject Loan Resubordination Indicator* is Yes. * Indicator is the answer to the following question in Loan Product Advisor: Resubordinating debt related to the subject property? November Page 5

6 Feedback s for Required Borrower Funds Loan Product Advisor returns the following messages when applicable: DOC GS* (New ) DOC GR* (New ) DOC BI** (Modified ) DOC VO** (Modified ) LPN DI LPN CO Purchase transaction example: Required Borrower Funds are calculated as $42, based on the information submitted: purchase price ($660,000.00) + alterations, improvements and repairs ($0.00) - loan amount ($600,000.00) + transaction costs ($2,500.00) - proceeds from subordinate financing ($20,000.00). Refinance transaction example: Required Borrower Funds are calculated as $42, based on the information submitted: alterations, improvements and repairs ($0.00) + refinance amount ($660,000.00) - loan amount ($600,000.00) + transaction costs ($2,500.00) - proceeds from subordinate financing ($20,000.00). Purchase transaction example: Required Borrower Funds are calculated as $42, based on the information submitted: purchase price ($660,000.00) + alterations, improvements and repairs ($0.00) - loan amount ($600,000.00) + transaction costs ($2,500.00) - proceeds from subordinate financing ($20,000.00). The amount of discount points paid by someone other than the Borrower must be added to the Loan Product Advisor calculated amount of required Borrower Funds. Refinance transaction example: Required Borrower Funds are calculated as $42, based on the information submitted: alterations, improvements and repairs ($0.00) + refinance amount ($660,000.00) - loan amount ($600,000.00) + transaction costs ($2,500.00) - proceeds from subordinate financing ($20,000.00). The amount of discount points paid by someone other than the Borrower must be added to the Loan Product Advisor calculated amount of required Borrower Funds. The loan purpose entered in Loan Product Advisor is purchase and a value has been entered in the refinance field. Please review the accuracy of the data submitted for this transaction. The loan purpose entered in Loan Product Advisor is refinance and a value has been entered in the purchase price field. Please review the accuracy of the data submitted for this transaction. * Returned if accessing Loan Product Advisor through the Loan Advisor Suite portal or through a system-to-system interface using specification v or higher. ** Returned if accessing Loan Product Advisor through a system-to-system interface using specification v and v Note: For Construction Conversion Mortgages and Manufactured Homes, Loan Product Advisor can calculate the Required Borrower Funds amount when the purchase price of the land and the value of the land are equal. However, for transactions where the purchase price of the land and value of the land are not equal, Loan Product Advisor cannot calculate the Required Borrower Funds amount. Consequently, you must calculate and verify the Required Borrower Funds for these transactions. November Page 6

7 Reserves Loan Product Advisor determines the amount of reserves required for the transaction (Required Reserves). Required Reserves The minimum amount of reserves that must be verified based on the risk of the loan and Guide requirements. Loan Product Advisor may not require any verified reserves for certain transactions, while other transactions may require reserves to be verified. The required amount is displayed in the Asset Information section of the Feedback Certificate. The Required Reserves amount includes additional required reserves when the subject property is a second home or an investment property. This means that you are no longer required to manually calculate the additional required reserves when your borrower has additional financed second homes and/or 1- to 4-unit investment properties for which the borrower is obligated. Note: Per Guide Section (b), for refinance Mortgages, the cash-out proceeds from the subject cash-out refinance transaction and any cash back received on the subject no cash-out refinance transaction are not eligible sources of funds for reserves. Reported Reserves Reported reserves is the amount entered in the Loan Product Advisor Reserves field. Paid Down Debts Calculation For purchase transactions, Paid Down Debts is the sum of the balances for the following liabilities that have a Paid Down indicator of Yes and amount entered in the Amount to be Paid Down field in Loan Product Advisor: Revolving Collections, Judgments and Liens Installment Open 30 Day Charge Account Other Liability Lease Payments Taxes Mortgage HELOC For refinance transactions, mortgages and other debts to be paid down are included in the Refinance field and, therefore, included in the Required Borrower Funds total. November Page 7

8 Feedback s for Paid Down Debts For Purchase transactions, Loan Product Advisor returns the Paid Down Debts total in the following Total Funds to be Verified messages: DOC GF* (New message) DOC XO** (New message) Example: The total funds to be verified are no less than $45, This amount includes required Borrower Funds ($42,500.00), required reserves ($3,000.00), any debts to be paid off at or before closing ($100.00) and any debts to be paid down at or before closing ($0.00). Example: The total funds to be verified are no less than $45, This amount includes required Borrower Funds ($42,500.00), required reserves ($3,000.00), and any debts to be paid off at or before closing ($100.00). The total funds to be verified do not include funds needed to pay down debt. In addition, the amount of discount points paid by someone other than the Borrower must be added to the amount that must be verified. * Returned if accessing Loan Product Advisor through the Loan Advisor Suite portal or through a system-to-system interface using specification v or higher. ** Returned if accessing Loan Product Advisor through a system-to-system interface using specification v and Paid Off Debts Calculation For purchase transactions, Paid Off Debts is the sum of the unpaid balances for the following liabilities that have a Paid Off indicator of Yes in Loan Product Advisor: Revolving Collections, Judgments and Liens Installment Open 30 Day Charge Account Other Liability Lease Payments Taxes Mortgage HELOC For refinance transactions, mortgages and other debts to be paid off are included in the Refinance field and, therefore, included in the Required Borrower Funds total. Feedback s for Paid Off Debts For Purchase transactions, Loan Product Advisor returns the Paid Off Debts total in the following Total Funds to be Verified messages: DOC GF* (New message) DOC XO** (Modified ) Example: The total funds to be verified are no less than $45, This amount includes required Borrower Funds ($42,500.00), required reserves ($3,000.00), any debts to be paid off at or before closing ($100.00) and any debts to be paid down at or before closing ($0.00). Example: The total funds to be verified are no less than $45, This amount includes required Borrower Funds ($42,500.00), required reserves ($3,000.00), and any debts to be paid off at or before closing ($100.00). The total funds to be verified do not include funds needed to pay down debt. In addition, the amount of discount points paid by someone other than the Borrower must be added to the amount that must be verified. * Returned if accessing Loan Product Advisor through the Loan Advisor Suite portal or through a system-to-system interface using specification v or higher. ** Returned if accessing Loan Product Advisor through a system-to-system interface using specification v and v November Page 8

9 Data Entry Tips Refer to the following tips to help obtain the most reliable results from Loan Product Advisor: Subject Property Designate only one property on the Schedule of Real Estate Owned as the subject property. Paid Down Debt If paying down the balance on a liability, enter the paid down debt information based on your Loan Product Advisor access as indicated below: If your Loan Product Advisor Access is Through Then Loan Advisor Suite portal, or System-to-system interface using specification v or higher Use the Paid down At or Before Closing? and Amount to be Paid Down? fields to enter applicable information. System-to-system interface using specification v or lower 1. For the impacted liability, adjust the Unpaid Balance field to the amount being paid down. 2. For the impacted liability, mark Yes for Paid off At or Before Closing field. 3. Add a new (duplicate) liability that reflects the remaining unpaid balance and months left to pay after the debt is paid down. or Add the amount of funds needed to pay down the debt to the Total Funds to be Verified amount. Discount Points If discount points are paid by someone other than the borrower, enter data based on your Loan Product Advisor access as indicated below: If your Loan Product Advisor Access is Through Then Loan Advisor Suite portal, or System-to-system interface using specification v or higher Submit the loan with values entered in the following fields: Discount points paid by the borrower entered in the Discount field Total discount points paid on the transaction entered in the Total Discount Points field Discount points paid by someone other than the borrower entered in the applicable Other Credit Type and Other Credit Amount fields under the Other Credits sub-section in the Details of Transaction section. System-to-system interface using specification v or lower 1. Submit the loan with: Discount points paid by the borrower entered in the Discount field Discount points paid by someone other than the borrower entered in the applicable Other Credit Type and Other Credit Amount fields. 2. Add the amount of non-borrower paid discount points to the Total Funds to be Verified amount. November Page 9

10 Subordinate Financing: - For all subordinate financing (existing and new), enter the total subordinate financing for the subject property in the Subordinate Amount field. - If the mortgage is a refinance with an existing HELOC that is being resubordinated and those funds will be drawn upon for the mortgage transaction, then: Step Action 1 Include the new amount drawn on the HELOC in Unpaid Balance field on the HELOC page 2 Enter $0 in the Monthly Payment field on the HELOC page 3 Enter No for the following fields: Paid down At or Before Closing?, Paid off At or Before Closing?, Excluded? and Resubordinating debt related to the subject property? on the HELOC page 4 Ensure the HELOC is linked to the subject property on the HELOC page 5 Exclude the existing HELOC monthly payment from the liabilities 6 Include the new HELOC monthly payment (based on the new outstanding balance) in the Other Financing P&I field in the Proposed Monthly Housing Expense section of the Monthly Housing Expense Breakdown page Construction Conversion Mortgages and Manufactured Homes For Loan Product Advisor to accurately calculate the loan-to-value (LTV) ratio for Construction Conversion Mortgages and Manufactured Homes, enter the value in accordance with the requirements in Guide Section and , as applicable, in the Purchase Price field. Alterations, Improvements & Repairs For purchase transactions, include the cost of any alterations, improvements and repairs in the Purchase Price field for Loan Product Advisor to accurately calculate the LTV ratio. For refinance transactions, the renovation costs should be entered in the Alterations, Improvements & Repairs field. Data Omissions Loan Product Advisor relies on the data provided to determine the Required Borrower Funds and the Total Funds to be Verified. Omitting the following conditionally required fields, when they apply, would either overstate or understate the Required Borrower Funds indicated by Loan Product Advisor: November Page 10

11 If Omitted, Required Borrower Funds Is Understated* Alterations, Improvements, Repairs Estimated Closing Costs Estimated Prepaid Items Overstated* Other Credit Type and Other Credit Amount Sales Concession Subordinate Financing PMI, MIP and Funding Fee Refinance (include debts to be paid off) Discount (if borrower will pay) Total Discount Points (total paid on the transaction)** * Impacted if the data is applicable to the loan transaction and was omitted from the data entry field. ** Total Discount Points field available if accessing Loan Product Advisor through the Loan Advisor Suite portal or through a system-to-system interface using specification v or higher. This document is not a replacement or substitute for the information found in the Freddie Mac Single-Family Seller/Servicer Guide, and/or terms of your Master Agreement and/or other Pricing Identifier Terms Freddie Mac November Page 11